UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C
INFORMATION STATEMENT PURSUANT TO SECTION 14C OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary information statement
[_] Confidential, for use of the Commission only (as permitted by Rule
14c-5(d)(2))
[_] Definitive information statement
PreCom Technology, Inc.
(Name of Registrant as specified in its Charter)
Payment of filing fee (check the appropriate box):
[_] No fee required
[] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
(4)Pursuant to Exchange Act Rule 0-11:
Proposed maximum aggregate value of transaction:
(5) Total fee paid: - fee of one-fiftieth of one percent (0.0002) Of the proposed aggregate value of the transaction.
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a) (2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number or the
form or schedule and the date of its filing.
(1) Amount previously paid:
$4,348.39
(2) Form, schedule or registration statement no.:
PRE 14C
(3) Filing party:
PreCom Technology, Inc.
(4) date filed:
07/03/2001
TABLE OF CONTENTS
I. LETTER TO SHAREHOLDERS | |
II. SUMMARY TERM SHEET | |
A. The Parties | 4 |
B. Key Terms of the Share Exchange Agreement | 8 |
C. Consenting Shareholders | 8 |
D. Regulatory Approvals Required | 8 |
E. Business and Operations of GroupNow | 8 |
F. Reasons for Engaging in this Transaction | 9 |
G. Consideration Offered to Security Holders | 9 |
H. Vote Required For Approval of the Transaction | 9 |
I. Federal Tax Consequences of the Transaction | 9 |
III. THE SHARE EXCHANGE AGREEMENT | |
A. Background of the Offer and Share Exchange Agreement | 10 |
B. The Parties to the Share Exchange Agreement | 11 |
C. Mergers, Consolidation, Acquisitions and Similar Matters | 47 |
D. Recommendation and Reasons of the PreCom Board For | 47 |
E. Material Terms of the Share Exchange Agreement | 48 |
F. Regulatory Approvals Required | 52 |
G. Federal Tax Consequences of the Transaction | 52 |
H. Consideration Offered To Security Holders | 53 |
IV. GENERAL INFORMATION | |
A. Date, Time, and Place Information | 54 |
B. Dissenter's Rights of Appraisal | 55 |
C. Voting Securities and Principal Holders thereof | 55 |
D. Directors and Executive Officers | 55 |
E. Stock Ownership and Certain Beneficial Owners and | 60 |
F. Compensation of Directors and Executive Officers | 63 |
G. Board Meetings and Committees | 64 |
H. Section 16(a) Beneficial Ownership Reporting Compliance | 64 |
I. Amendments of Charter, Bylaws or Other Documents | 64 |
J. Certain Relationships and Related Transactions | 64 |
K. Interest of Certain Person in or Opposition to Matters to | 64 |
V. EXHIBITS
Annex A. Share Exchange Agreement
Annex B. Consulting Agreement with Greenwich Financial
PRECOM TECHNOLOGY, INC.
2001 West Main Street, Suite 208
Stamford, CT 06902
July 13, 2001
Dear Shareholder:
The enclosed information statement is being furnished to shareholders of record on June 7, 2001, of PreCom Technology, Inc. ("we", "our"), a Florida corporation in connection with the following actions taken by written consent of holders of a majority of the outstanding shares of our common stock entitled to vote on the following proposals:
1. To acquire all of the issued and outstanding shares or stock of GroupNow, Inc. ("GroupNow"), as a wholly owned subsidiary in exchange for 9,453,017 shares of our common stock, par value $.001 ("Common Stock) subject to satisfaction of the terms and conditions set forth in the attached Share Exchange Agreement.
2. To amend our Certificate of Incorporation to change our corporate name to GroupNow, Inc., or a substantially similar name.
3. To reverse split our common stock at a ratio of 1-for-20.
4. To increase the size of the board of directors to nine directors and to select as new directors representatives of GroupNow including: David Simonetti, Mark Elenowitz, Louis Taubman, Thomas Bostic Smith, Allison Creely, Melvyn Estrin, Peter Morris and James Schroeder. Nicholas Calapa will continue to serve on our board of directors following the Share Exchange.
WE ARE NOT ASKING FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
On June 4, 2001, our board of directors fully reviewed and unanimously approved a Share Exchange Agreement with GroupNow, Inc. and its shareholders ("the "Share Exchange Agreement"). (See Annex A of Information Statement). Our board of directors has determined that the consideration provided in the Share Exchange Agreement is fair to our shareholders.
Holders of approximately 52% of our common stock have executed a written consent in favor of the proposals described herein. However, under federal law these proposals will not be effected until at least 20 days after this Information Statement has first been sent to shareholders.
By Order of the Board of Directors,
/s/ Nicholas M. Calapa
Nicholas M. Calapa, President
The date of this Information Statement is September 3, 2001
II. SUMMARY TERM SHEET
This Summary Term sheet highlights selected information from this Information Statement and may not contain all the information that is important to you. If you wish to understand the transaction fully, you should carefully read this entire Information Statement and the documents to which it refers. The Share Exchange Agreement is attached as Annex A to this Information Statement. It is the definitive legal document that governs the transaction.
A. THE PARTIES:
We were incorporated in September 1996 in the state of Florida. We are currently a "shell" with no business operations. Our business plan has been to seek out business opportunities and/or to merge with another company. We are publicly traded on the OTC Electronic Bulletin Board ("OTCBB") under the symbol PMMT having recently received approval from the NASD to trade on the OTCBB (See Section III, Item B).
GroupNow is a privately held corporation. It was incorporated in February 1999 in the state of Delaware, as VentureNow, Inc. In December 1999, it changed its name to GroupNow, Inc. GroupNow is an integrator, a company focused on acquiring and managing the integration of companies that have common or similar strengths and operations. GroupNow plans to acquire cash flow positive companies in specific industries, and integrate those industry-specific companies into a unified, nationally branded organization that offers much greater growth potential than that of a single company in a traditional market sector (See Section III, Item B).
B. KEY TERMS OF SHARE EXCHANGE AGREEMENT
2. SHARE EXCHANGE
Shares Being Exchanged. The Shareholders of GroupNow agree to transfer to PreCom, and PreCom agrees to purchase from the shareholders of GroupNow, all of the right, title and interest in their GroupNow stock, representing 100% of the issued and outstanding stock of GroupNow, free and clear of all mortgages, liens, pledges, security interests, restrictions, encumbrances, or adverse claims of any nature, in exchange for 9,453,017 shares of PreCom Common Stock.
3. CLOSING
4. CONDITIONS PRECEDENT TO THE SHARE EXCHANGE AGREEMENT
5. TERMINATION OF SHARE EXCHANGE AGREEMENT
The Share Exchange Agreement may be terminated (1) by mutual consent in writing or (2) by either GroupNow or PreCom there has been a material misrepresentation or material breach of any warranty or covenant by any other party that is not cured by the Closing.
C. CONSENTING SHAREHOLDERS
Greenwhich New Venture Equity Fund, Greenwich Financial Group, and Flashstar Funding Corp, controlling 52% of the issued and outstanding shares of our Common Stock, consented to the terms of the Share Exchange Agreement. These shareholders were provided with a copy of the Share Exchange Agreement and its exhibits and had reviewed the decision by our Board of Directors recommending the Share Exchange.
100% of the shareholders of GroupNow, Inc., consented to the terms of the Share Exchange Agreement. These shareholders were provided with a copy of the Share Exchange Agreement and its exhibits and had reviewed the decision by our Board of Directors recommending the Share Exchange.
Neither the shareholders nor the Companies has received opinions or reports from outside financial advisors as to the fairness of this transaction.
D. REGULATORY APPROVALS REQUIRED
None.
E. BUSINESS AND OPERATIONS OF GROUPNOW
GroupNow is an integrator, a company focused on acquiring and managing the integration of companies that have common or similar strengths and operations. GroupNow plans to acquire cash flow positive companies in specific industries, and integrate those industry-specific companies into a unified, nationally branded organization that offers much greater growth potential than that of a single company in a traditional market sector. While GroupNow's current plans include the acquisition of companies in the Professional Employer Organization (PEO) industry, their strategic plan calls for the acquisition of companies in other industries as they grow. Each industry-specific group of companies that GroupNow acquires will be organized as an operational subsidiary of GroupNow.
Once the group achieves critical mass, GroupNow will actively look to leverage the value of the subsidiary through public financing and strategic alliances. GroupNow's goal is to create profitable, high-growth companies in a cross-section of industries
Currently, GroupNow has no substantive business operations. GroupNow has previously had operations providing financial advisory services and they continue to maintain many of the human resources necessary to provide such services while they seek new engagements, however GroupNow has generated no revenue from advisory services since the first quarter of 2000.
GroupNow currently has four full-time and five part-time employees. GroupNow's business activities currently consist of developing our business plans, evaluation of potential acquisitions, partnerships, and business combinations, and arranging the financing necessary to carry out their plans.
F. REASONS FOR ENGAGING IN THIS TRANSACTION
(See Section III, Item D).
G. CONSIDERATION OFFERED TO SECURITY HOLDERS
H. VOTE REQUIRED FOR APPROVAL OF TRANSACTION
I. FEDERAL TAX CONSEQUENCES OF THE TRANSACTION
4
PRECOM TECHNOLOGY, INC.
2001 West Main Street, Suite 208,
Stamford, CT 06902
INFORMATION STATEMENT PURSUANT TO
SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND
RULE 14C PROMULGATED THERETO
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE NOT REQUESTED TO SEND US A PROXY.
III. THE SHARE EXCHANGE AGREEMENT
A. BACKGROUND OF THE OFFER AND THE SHARE EXCHANGE AGREEMENT
Management has made numerous efforts to pursue the original business plan and to raise capital to operate the business. For the reason that the equity markets have gone through recent turmoil and we had ambitious plans for a capital intensive business, with no assurance that our capital needs would be realized, we looked for potential acquisition candidates. In addition, as of the most recent quarter, we have incurred net losses of $458,722 from inception. We have abandoned all development activities and have no assets. These factors raised doubt as to our ability to continue as a going concern. Management's plans to eliminate the going concern situation included but were not limited to seeking a merger candidate. A mature and businesslike evaluation of our affairs required the consideration of the foreseeable possibility of business failure. Accordingly, a reverse acquisition transaction became a possible and foreseeable solution.
Prior to trading again on the OTCBB, we entered into merger discussions with Nutech Digital, Inc. around September 2000. All discussions ended on March 6, 2001 when Nutech decided that a private placement would better suit their shareholders then to merge with us. In early April 2001, after negotiations with Nutech ended, we entered into merger discussions with Information Technology Co., Inc. After preliminary discussions with Information Technology, our board of directors decided to end all discussions when the board of Information Technology requested that $250,000 in cash plus all PreCom shares be included in a proposed share exchange.
In early January 2001, we had received an offering memorandum from GroupNow, Inc. dated November 1, 2000, and on or about March 5, 2001, we contacted GroupNow, Inc., to follow up on their progress and to consider an opportunity to be acquired by our Company. GroupNow, Inc. expressed that they were looking for merger candidates, but only companies that were trading on the OTCBB. As of early March, we were trading only on the Pink Sheets. On March 28, 2001, the NASD notified us that we were approved to trade on the OTCBB and we were listed on the OTCBB on March 29, 2001, trading under the new symbol PMMT. PreCom contacted GroupNow, Inc. around May 9, 2001, and alerted GroupNow, Inc. that the Company was now trading on the OTC BB.
5
Mr. Calapa, the President of PreCom Technology, Inc. and Mr. Elenowitz, the Co-Chairman of GroupNow, Inc. began discussing the possibility of a merger between GroupNow, Inc. and PreCom Technology shortly after May 9, 2001. PreCom was provided a complete due diligence package on GroupNow, Inc. After careful review, Mr. Calapa decided that GroupNow, Inc. would enhance our shareholder value and moved forward to approach the board of directors to discuss a share exchange.
On May 14, 2001 the board of directors met and agreed with Mr. Calapa's assessment of GroupNow, Inc. The board of directors authorized Mr. Calapa to continue discussions with GroupNow, Inc. and to move towards a preliminary agreement.
GroupNow, Inc. and PreCom continued discussions and negotiations until May 23, 2001, at which point we entered into a Letter of Intent for PreCom to acquire all the issued and outstanding shares of GroupNow, Inc. Upon execution of the Letter of Intent, legal counsel was instructed to prepare documents that were necessary to complete this transaction.
Our board of directors met on June 1, 2001 and authorized the execution of the Share Exchange Agreement with GroupNow, Inc. and the related actions in connection with this Agreement. On June 4, 2001 the Share Exchange Agreement was executed. A copy of the Share Exchange Agreement is attached as Annex "A".
B. PARTIES TO THE SHARE EXCHANGE AGREEMENT
PreCom Technology, Inc. ("PreCom")
Information about our company can be found in our December 31, 2000 Annual Report filed on Form 10-KSB. This report is attached as Annex B. All of our filings, and exhibits thereto, may be inspected without charge at the public reference section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of this material also may be obtained from the SEC at prescribed rates. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding public companies that file reports with the SEC. Copies of these filings may be obtained from the SEC's website at http://www.sec.gov.
GroupNow, Inc. ("GroupNow")
GroupNow is a privately-held corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, incorporated in February 1999, under the name VentureNow, Inc. In December 1999, it changed its name to GroupNow, Inc. GroupNow is in good standing under the laws of the State of Florida and under each jurisdiction where such qualifications are required, except where the lack of such qualification would not have a material adverse effect on the financial condition of GroupNow taken as a whole. The business plan of GroupNow is disclosed in Section III. C.3.
GroupNow shareholders consist of 50 shareholders, who own a total of 6,850,000 shares, respectively. These shares were issued for services rendered and other considerations.
1. EXECUTIVE OFFICES OF PARTIES
PreCom Technology, Inc.'s executive offices are located at 2001 West Main Street, Suite 208, Stamford, CT 06902. Its telephone number is (203) 961-0306 and its facsimile number is (203) 961-0365.
GroupNow, Inc.'s executive offices are located at 2455 East Sunrise Boulevard, Suite 511, Fort Lauderdale, Florida 33304. Its telephone number is (954) 537-2158 and its facsimile number is (954) 233-4319.
2. ABOUT PRECOM'S BUSINESS
We were formed in Florida on September 5, 1996, under the name Fairbanks, Inc. On April 18, 1997, we filed an amendment to our incorporation document changing our name to Jet Vacation, Inc. On May 11, 1998, we filed an amendment to our incorporation document changing our name to PreCom Technology, Inc. Although, we were founded in 1996, our business plan has recently been restructured and redeveloped.
We are currently a "shell" with no business operations and our current business plan is to seek out business opportunities and to pursue other related activities intended to enhance our shareholder value.
For the past two years, we have been seeking opportunities to merge with a foreign or domestic private issuer that wishes to become a reporting issuer. However, we have also explored opportunities, which would take the form of a purchase, exchange of stock, or encompass entities such as a corporation, joint venture or partnership. To date, we have no assets, operations or revenues.
Our audited financial statements for the year ended December 31, 2000 and our periodic statements for the six months ended June 30, 2001 are contained in our Annual Report filed on Form 10KSB, as amended, on file with the Commission on April 2, 2001 and our Periodic Report filed on Form 10QSB, as amended, on file with the Commission on August 16, 2001, both of which are incorporated by reference.
3. ABOUT GROUPNOW'S BUSINESS
GroupNow is an integrator, a company focused on acquiring and managing the integration of companies that have common or similar strengths and operations. GroupNow plans to acquire cash flow positive companies in specific industries, and integrate those industry-specific companies into a unified, nationally branded organization that offers much greater growth potential than that of a single company in a traditional market sector. While GroupNow's current plans include the acquisition of companies in the Professional Employer Organization (PEO) industry, their strategic plan calls for the acquisition of companies in other industries as they grow. Each industry-specific group of companies that GroupNow acquires will be organized as an operational subsidiary of GroupNow.
GroupNow provides a management team with experience in strategy, finance, marketing, operations, accounting, and law, and intends to provide the capital resources, industry knowledge and technological expertise necessary to integrate each company to the point where a group of synergistic companies has reached critical mass.
Once the group achieves critical mass, GroupNow will actively look to leverage the value of the subsidiary through public financing and strategic alliances. GroupNow's goal is to create profitable, high-growth companies in a cross-section of industries.
Strategy
The GroupNow approach to managed integration is designed to develop successful, high-growth companies through a carefully constructed plan of action. For each targeted industry, GroupNow intends to:
Structure and Operations
GroupNow will employ acquisition subsidiaries, which they refer to as industry "pods," that are focused on a particular vertical market or industry. For example, were GroupNow to develop a critical mass of companies in the pharmaceuticals industry, they would refer to that group as their its "pharmaceuticals pod." GroupNow plans to create pods in a variety of industries, the first of which GroupNow expects to be in the professional employer industry. From there, they may develop pods in other industries such as consumer products, environmental systems, media and entertainment, and information technology.
Whereas, traditionally, the acquisition and combination of several industry-specific companies into one larger company has met with mixed results, GroupNow believes that the effective top-down integration of each company into the larger whole is the key to success in this endeavor. This is to say that, GroupNow evaluates the entirety of the issues surrounding each potential acquisition and its proposed combination with their existing holdings in the acquisition's industry before they consummate the transaction. Therefore, GroupNow provides senior level management services to each pod, effectively managing the integration of each acquisition into the pod in concert with each pod's industry-specific management team. GroupNow believes that this process of managed integration will provide for smooth and rapid growth and an overall stronger and, consequently, more profitable, enterprise.
The executives of GroupNow are charged with managing the processes of:
GroupNow intends to actively engage in building a community of emerging growth companies through acquisition. These companies will collaborate to provide cross-selling and marketing opportunities and support entrepreneurial initiatives, business growth and the sharing of information and business expertise. In addition to providing managerial expertise and financing, GroupNow will offer them a comprehensive array of services, including information technology expertise, branding, marketing and public relations services, and the value-added buying power of a large enterprise.
The PEO Industry
The professional employer organization industry - staff leasing organizations that assume various employer responsibilities for a company's employees such as HR, payroll, and benefits - began to evolve in the early 1980's largely in response to the burdens placed on small and medium-sized employers by an increasingly complex legal and regulatory environment. While various service providers were available to assist these businesses with specific tasks, PEOs emerged as providers of a more comprehensive range of human resources services (such as payroll, workers compensation, benefits, and professional employment advice) relating to the employer/employee relationship for small to medium businesses. As a result, clients are able to obtain a benefits package that would typically only be available to large corporations, stabilize their labor costs, reduce the time and resources necessary to human resources services, and focus on the core competencies of their businesses.
Sector Growth. The PEO staffing sector is projected to be a $42 billion industry in 2001 (Staffing Industry Report) and is growing at 20 and 30 percent per year according to the National Association of Professional Employer Organizations (NAPEO). In 1997, PEOs accounted for an estimated 2 to 3 million employees, up from only 10,000 in 1984. NAPEO projects that the number is expected to exceed 10 million nationwide this year. The key factors driving demand for PEO services include:
PEO Market Opportunities
Today, there are more than 2000 PEO's however, the industry is still in its early stages and there are tremendous opportunities for continued growth and expansion. Of the estimated 52 million people currently employed by small businesses in the United States, only 3 percent are currently able to take advantage of PEO management services. The industry is highly fragmented and most PEO operations have fewer than 1000 worksite employees providing an excellent opportunity for an existing PEO firm to develop a competitive advantage through acquisitions.
Our PEO Integration Strategy
GroupNow plans to make series of strategic acquisitions to rapidly increase the group's revenues, decrease operating costs per worksite employee, and provide additional value-added services to their clients. GroupNow will grow their PEO group using the following strategies:
Acquisitions. Acquire several existing PEOs and staffing agencies with positive cash flows and clients that compliment each organization's existing customer base.
Sales and Service Expansion. Introduce new organizations to the group and expand their service capacity, clients, number of worksite employees, and service areas. The combination of these new services and expanded sales will not only rapidly increase the group's revenue, but is expected to significantly increase the group's overall profit margins.
Launch an eBusiness Strategy. Establish a comprehensive electronic business strategy designed to both improve customer service and create an on-line community to provide our customers with value-added services not normally available to small businesses. GroupNow's vision is to build an online exchange that assists small businesses to better manage their organizations and enables employees to better manage their personal finances and expenses through a variety of web-based benefits and services.
Strategic Partnerships and Alliances. Create a network of strategic partnerships and marketing agreements with small business service providers, such as banking and financial service groups, insurance companies, healthcare organizations, legal services, advertising and marketing firms, and wireless communication and Internet service provides.
Network and Computer Upgrades. Upgrade and improve internal telecommunication and network infrastructure to allow for enhanced communications among sales force, clients, and customer service centers. Develop a corporate intranet to enable individual small businesses to easily create virtual offices to save both time and money.
Plans for Acquisitions
GroupNow will acquire companies through either a merger, purchase of stock, exchange of shares, or purchase of assets. GroupNow has identified at least three possible acquisitions in the PEO industry, and has executed a Letter of Intent to Acquire with one of them. The terms of that letter of intent call for a purchase price of $2,500,000 in cash. The other two contemplated acquisitions are valued between $14,000,000 and $16,000,000 combined which, if GroupNow decided to pursue those acquisitions, would likely be paid in a combination of cash and equity securities. GroupNow has not yet acquired any companies in the PEO industry and there can be no guarantee that they will. GroupNow may, because of business factors, choose to pursue acquisitions in another business sector or, if they are unable to secure adequate financing, GroupNow may be unable to consummate any acquisitions in any industry. Any of these scenarios may have a material positive or negative impact on our future revenue and profitabili ty.
GroupNow is in the process of arranging a credit facility (senior debt) which is intended to provide eighty percent (80%) of the capital necessary for our currently contemplated acquisitions which are estimated to have a total mean purchase cost of eighteen million five hundred dollars ($18,500,000). The other twenty percent of the necessary capital, equaling approximately three million, seven hundred thousand dollars ($3,700,000) must be raised by GroupNow through the sale of securities. However, there can be no assurance that GroupNow will close on the necessary credit facility nor that it will be able to raise $3,700,000 from the sale of securities. If GroupNow is unable to secure the necessary financing to carry out their business plans, there will be a material negative impact on our revenue and profitability.
Current Business Operations
Currently, GroupNow has no substantive business operations. GroupNow has previously had operations providing financial advisory services and they continue to maintain many of the human resources necessary to provide such services while they seek new engagements, however GroupNow has generated no revenue from advisory services since Q1 2000.
GroupNow currently has four full-time and five part-time employees. GroupNow's business activities currently consist of developing their business plans, evaluation of potential acquisitions, partnerships, and business combinations, and arranging the financing necessary to carry out their plans.
GroupNow Management's Discussion and Analaysis and Plan of Operations
Overview
GroupNow is an integrator, a company focused on acquiring and managing the integration of companies that have common or similar strengths and operations. GroupNow plans to acquire cash flow positive companies in specific industries, and integrate those industry-specific companies into a unified, nationally branded organization that offers much greater growth potential than that of a single company in a traditional market sector.
This is a discussion, by GroupNow's management, of it operations. When they use the terms "GroupNow", "we", "our" they mean GroupNow, Inc. and its consolidated subsidiaries.
Results of Operations
Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000
General
We incorporated GroupNow on February 18, 1999 and have been a Development Stage Company from the period from February 18, 1999 (date of incorporation) through June 30, 2001.
Revenue
Since the end of the first quarter 2000, we have concentrated our resources on developing the business plans and evaluating potential acquisitions and during the six months ended June 30, 2001 we focused our efforts on negotiating and completing the Share Exchange Agreement. As a result, GroupNow earned no revenues during those periods. We have previously had operations providing financial advisory services and we continue to maintain many of the resources necessary to provide such services. As a result, revenue decreased from $392,431 in the six months ended June 30, 2000 to $0 in the six months ended June 30, 2001.
Operating Expenses
Operating expenses have increased $344,808 from $447,775 in the six months ended June 30, 2000 to $792,583 in the six months ended June 30, 2001 as a result of $104,445 of amortization expense for stock options issued in exchange for consulting services. This agreement was not in place during the first half of 2000. Compensation and benefits increased $155,154 during 2001 as compared to 2000 because we began to staff the operations during the first and second quarter of 2000 that process was not completed until the fourth quarter of 2000. While there was a reduction in staff during the first quarter of 2001, this did not offset the higher overall base of compensation. Rent increased $28,510 from $30,648 in 2000 to $59,158 in 2001 reflecting the opening of an additional office in Rockville, MD as well as higher rent expense for the Ft. Lauderdale office in 2001 as compared to 2000.
Loss from Operations
The loss from operations increased from $55,344 for the six months ended June 30, 2000 to $792,583 in the six months ended June 30, 2001 reflecting higher operating expenses and a substantial decrease in revenue generating activities.
Interest Income
We keep the majority of our cash balances in interest-bearing accounts. Interest income decreased 91% from $20,163 in 2000 as compared to $1,911 in 2001 as a result of a reduction in the cash balances of $917,487 at June 30, 2001 to $4,362 at June 30, 2001.
Net Loss per Common Share
The net loss per common share increased from $0.01 in 2000 to $0.12 in 2001.
Liquidity and Capital Resources
Net cash used in operating activities increased during the six months ended June 30, 2001 compared to the six months ended June 30, 2000, from $317,490 to $498,004 due primarily to the permanent impairment of the fair value of marketable securities of $322,431 offset by the add back of the amortization of the issuance of stock options in exchange for consulting services of $104,445 in 2001 as well as the increase in accrued payroll liabilities of $109,228 from $4,766 in 2000 to $113,994 in 2001. In addition, prepaid expenses decreased $70,772 in 2001 as compared to the increase of $22,029 in 2000.
Cash provided by investing activities was $913,893 during the six months ended June 30, 2000. This cash was provided by the proceeds from a promissory note receivable that was paid back to the Company during the first quarter of 2000 of $1,000,000 offset by capital expenditures of $86,107. In contrast, net cash used in investing activities was $35,978 during the six months ended June 30, 2001 reflecting the capital expenditures of $43,836 reduced by the disposal of assets of $7,858.
Net cash provided by financing activities was $98,800 during the six months ended June 30, 2001. There was no cash provided by financing activities during the comparable periods in 2000. The cash was provided by subscriptions for common stock not yet issued to investors. We intend to issue the common stock at the time the Share Exchange is completed.
Our business does not require a great deal of equipment or fixed assets. It does, however, require us to deploy resources to build our operations and maintain our staff. In the future, we expect to raise capital to fund our continued growth as a business integrator. Our future capital requirements will depend in large part on the types of businesses in which we develop new operations and the development of new operations in existing subsidiaries. Our plans and the related capital requirements will be dependent on various factors, including changes in the capital markets, economic and political forces and changing investor sentiment as well as the availability of acquisition opportunities.
We are pursuing an aggressive growth strategy that will require substantially more funding. We cannot assure that we will be able to secure such financing or, even if available, that we can secure it on acceptable terms. Furthermore, even if such financing is available, to obtain it we may have to issue securities that dilute our current shareholders and the current shareholders of PreCom after the Share Exchange is completed. If we require, but are unable to obtain, additional adequate or acceptable financing in the future, we may not be able to expand, respond to changing business or economic conditions, withstand adverse operating results or compete effectively, and our business, financial condition and operating results may be materially and adversely affected.
GroupNow, Inc. and Subsidiaries
(A Development Stage Company)
Unaudited Consolidated Condensed Financial Statements
Six months ended June 30, 2001 and 2000
Contents
Financial Information | |
Unaudited Consolidated Condensed Balance Sheets as of June 30, 2001 | 19 |
Unaudited Consolidated Condensed Statements of Operations for the six months ended June 30, 2001 and 2000 and for the period from February 18,1999 (date of incorporation) through June 30,2001 | 20 |
Unaudited Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2001 and 2000 and for the period from February 18,1999 (date of incorporation) through June 30,2001 | 21 |
Unaudited Notes to Consolidated Condensed Financial Statements | 22 |
GroupNow, Inc. and Subsidiaries
(A Development Stage Company)
Unaudited Consolidated Condensed Balance Sheets
As of June 30, 2001
June 30, 2001 | ||
Assets | ||
Current assets: | ||
Cash | $ 4,362 | |
Prepaid expenses and other current assets | 19,763 | |
Total current assets | 24,125 | |
Property and equipment, net of accumulated depreciation and amortization | 108,742 | |
Other assets | 40,000 | |
Total assets | $ 172,867 | |
Liabilities and stockholders' deficit | ||
Current liabilities: | ||
Accounts payable | $ 54,298 | |
Accrued payroll liabilities | 179,398 | |
Promissory note payable | 25,000 | Total current liabilities | 258,696 |
Commitments | ||
Stockholders' deficit: | ||
Series A preferred stock, $.001 par value per share, | – | |
Preferred stock, $.001 par value per share, | – | |
Common stock, $.001 par value per share, 20,000,000 shares authorized, 6,850,000 shares issued and outstanding | 6,850 | |
Common stock subscribed, $.001 par value per share, 25,625 shares subscribed for but not issued | 26 | |
Additional paid-in capital | 2,076,424 | |
Deficit accumulated during the development stage | (2,169,129) | |
Total stockholders' deficit | (85,829) | |
Total liabilities and stockholders' deficit | $ 172,867 | |
See accompanying notes.
GroupNow, Inc. and Subsidiaries
(A Development Stage Company)
Unaudited Consolidated Condensed Statements of Operations
Six Months Ended June 30 | Period from February 18, 1999 (Date of Incorporation) | ||
2000 | 2001 | 2001 | |
Revenue | $ – | $ 392,431 | $ 529,140 |
Operating expenses: | |||
Compensation and benefits | 433,384 | 278,230 | 1,375,080 |
Professional fees | 166,907 | 46,692 | 439,166 |
Loss on investments | – | – | 322,431 |
Rent | 59.158 | 30,648 | 172,917 |
Development costs | 27,816 | 16,502 | 86,628 |
Depreciation and amortization | 17,180 | 7,159 | 35,992 |
General and administrative | 88,138 | 68,544 | 298,664 |
Total Operating expenses: | 792,583 | 447,775 | 2,730,878 |
Loss from operations | (792,583) | (55,344) | (2,201,738) |
Other income: | |||
Interest income | 1,911 | 20,163 | 32,609 |
Loss before income taxes | (790,672) | (35,181) | (2,169,129) |
Income taxes | – | – | – |
Net loss | $ (790,672) | $ (35,181) | $ (2,169,129) |
Net loss per common share - basic and diluted | $ (0.12) | $ (0.01) | $ (0.34) |
Weighted average number of common shares outstanding | 6,857,621 | 6,250,000 | 6,434,845 |
See accompanying notes.
GroupNow, Inc. and Subsidiaries
(A Development Stage Company)
Unaudited Consolidated Condensed Statements of Cash Flows
Six Months Ended | Period from February 18, 1999 (Date of Incorporation) | ||
2001 | 2000 | 2001 | |
Operating activities | |||
Net loss | $ (790,672) | $ (35,181) | $(2,169,129) |
Adjustments to reconcile net (loss) income to net cash used in operating activities: | |||
Depreciation and amortization | 17,180 | 7,159 | 35,992 |
Ammortization of expense related to consultant options | 104,445 | – | 122,500 |
Changes in operating assets and liabilities: | |||
Investments | – | (322,431) | – |
Prepaid expenses and other current assets | 70,772 | 22,029 | (19,763) |
Other assets | – | – | (40,000) |
Accounts payable | (13,723) | 6,168 | 54,298 |
Accrued payroll liabilities | 113,994 | 4,766 | 179,398 |
Net cash used in operating activities | (498,004) | (317,490) | (1,836,704) |
Investing activities | |||
Issuance of promissory note receivable | – | – | (1,000,000) |
Proceeds from promissory note receivable | – | 1,000,000 | 1,000,000 |
Disposal of assets | 7,858 | – | 7,858 |
Capital expenditures | (43,836) | (86,107) | (152,592) |
Net cash (used in) provided by investing activities | (35,978) | 913,893 | (144,734) |
Financing activities | |||
Proceeds from common stock subscription | 73,800 | – | 73,800 |
Proceeds from issuance of common stock | – | – | 387,000 |
Proceeds from promissory note payable | 25,000 | – | 25,000 |
Proceeds from preferred stock subscription payable | – | – | 1,500,000 |
Net cash provided by financing activities | 98,800 | – | 1,985,800 |
Effect of exchange rates on cash and cash equivalents | 2,205 | – | – |
Net (decrease) increase in cash and cash equivalents | (432,977) | 596,403 | 4,362 |
Cash and cash equivalents at beginning of period | 437,339 | 321,084 | – |
Cash and cash equivalents at end of period | $ 4,362 | $917,487 | $ 4,362 |
Supplemental disclosure of cash flow information | |||
Reclassification between common stock and | |||
$ 1,370 | – | $ 4,658 | |
Revenues earned in the form of available for sale securities | – | $322,431 | $322,431 |
Loss on investments | – | – | $322,431 |
Conversion of note payable to common stock in | |||
– | – | $1,500,000 | |
See accompanying notes
GroupNow, Inc. and Subsidiaries
(A Development Stage Company)
Unaudited Notes to Consolidated Condensed Financial Statements
June 30, 2001
1. Organization and Basis of Presentation
GroupNow, Inc. (the Company) was incorporated in Delaware on February 18, 1999 as VentureNow, Inc. and provides investment banking, consulting and financial services as well as venture capital management. The Company's headquarters and primary operations are in the United States.
The Company has operated as a development stage enterprise since its inception by devoting substantially all of its efforts to financial planning, raising capital, developing its services offering, and developing markets for its financial services. Accordingly, the consolidated financial statements of the Company have been prepared in accordance with the accounting and reporting principles prescribed by Statement of Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by Development Stage Enterprises, issued by the Financial Accounting Standards Board.
Interim Financial Information
These consolidated condensed statements are unaudited and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2000. These unaudited consolidated condensed financial statements reflect all adjustments, consisting only of normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results in the interim periods presented. Interim operating results may not be indicative of the operating results for a full year.
On October 19, 2000, the Company's shareholders authorized a 2.5-for-1 split of its common stock with no change in par values for shareholders of record as of that date. On March 28, 2001, the Company's shareholders authorized a 1.25-for-1 split of its common stock with no change in par value for shareholders of record as of that date. To reflect the common stock splits, common stock was increased and paid-in capital was decreased by the same amount. All per share and shares outstanding data have been restated to reflect the impact of the common stock split.
Comprehensive Income
The Company's comprehensive loss, as determined by Statement of Financial Accounting Standard No. 130, Comprehensive Income,(SFAS No. 130), consisted of net losses for the six months ended June 30, 2001 and 2000 as well as for the period from February 18, 1999 (date of incorporation) through June 30, 2001.
2.Summary of Signifcant Accounting Policies
Computation of Net Loss per Common Share
Net loss per common share is computed using the weighted average number of common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon exercise of stock options (using the treasury stock method.) Potential common shares outstanding have not been included in the computation of diluted loss per share for all periods presented, as their effect is anti-dilutive.
Use of Estimates
The preparation of consolidated condensed financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions regarding the outcome of pending litigation and other matters that affect the consolidated financial statements and related disclosures. These estimates and assumptions are based on judgment and available information, and, consequently, actual results could differ from these estimates.
Reclassifications
Certain amounts in the prior year's consolidated financial statements and related notes have been reclassified to conform to the current year's presentation.
3. Going Concern
The consolidated condensed financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company reported a net loss of $790,672 and $2,169,129 for the six months ending June 30, 2001 and for the period from February 18, 1999 (date of incorporation) through June 30, 2000, respectively. The Company also has negative working capital of $234,572 as of June 30, 2001. These conditions raise substantial doubt about the Company's ability to continue as a going concern.
The Company is currently negotiating with several private funding sources to possibly place up to $3 million of the Company's securities in a private placement. Although the Company believes that there are a number of parties interested in participating in such placement, there is no guarantee that the Company will be successful in raising all or a portion of such additional funds.
The Company's continued existence is dependent upon its ability to raise capital and to market and sell its services successfully. The consolidated condensed financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
4. Stockholders' Equity
Stock Options
On October 26, 2000, the Company entered into a one-year agreement with a consulting firm in exchange for consulting services. In accordance with the agreement, the Company issued 250,000 options at an exercise price of $1.60, the then fair market value of the Company's common stock. Because this contract does not contain performance commitments, Emerging Issues Task Force (EITF) No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling Goods and Services, requires that the Company remeasure the fair value of the options on the date the options vest, not on the date they are granted. The Company recorded compensation expense of $122,500 and $104,445 related to the number of options that vested in the period from February 18, 1999 (date of incorporation) through June 30, 2001 and for the six months ended June 30, 2001, respectively. The fair value of these options has been calculated based on a Black-Scholes model at $180,000. This contract does not contain performance commitments, therefore variable accounting will apply to these options for the remainder of the contract period. Of the 250,000 options excercisable, 170,731 options have been earned through June 30, 2001 under the agreement.
The fair value for the non-employee options was estimated at June 30, 2001 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 6%; no expected dividends; volatility factor of .001; and expected life of the options of five years.
On January 4, 2001, the Company granted options to an employee to purchase 250,000 shares of the Company's common stock at $1.60 per share, the then fair market value of the Company's common stock.
Common Stock Subscribed
During 2001, the Company received $73,800 from accredited investors for common stock subscribed but not yet issued as of June 30, 2001. Common stock subscribed was credited for $26, representing the par value of the 25,625 common shares subscribed and the balance of $73,774 was credited to additional paid-in capital.
5. Related Party Transaction
In June 2001, the Company entered into a $25,000 promissory note agreement with a company controlled by two officers of the Company. The principal is to be repaid in one year with no prepayment penalty. Interest accrues at a rate of 5% and is payable quarterly, in arrears. As of June 30, 2001, the outstanding balance of this loan was $25,000.
